FORBEARANCE by HC11120613329

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									         Forbearance:
What is it? What’s wrong with it?
           How to fix it.

          Presentation for the

      National Association of
 State Utility Consumer Advocates

      Annual Meeting, Anaheim, CA
          November 12, 2007

            Susan M. Baldwin
                    What is it?

  Congress set forth forbearance standards in the
  Telecommunications Act of 1996: 47 USC 201(b)) (47 USC
  160)

  FCC shall forbear from applying regulations if three-prong
  test met:
  •Just and reasonable/non-discrimination AND
  •Protection of consumers AND
  •Public Interest


November 12, 2007         Susan M. Baldwin       NASUCA Annual Meeting
                            What is it?
  “In making the determination under subsection (a)(3) of this section,
  the Commission shall consider whether forbearance from enforcing the
  provision or regulation will promote competitive market conditions,
  including the extent to which such forbearance will
  enhance competition among providers of
  telecommunications services. If the Commission determines
  that such forbearance will promote competition among providers of
  telecommunications services that determination may be the basis for a
  Commission finding that forbearance is in the public interest.”
  §160(b) [EMPHASIS ADDED


  [Most petitions, if granted, would stifle competition]




November 12, 2007                  Susan M. Baldwin        NASUCA Annual Meeting
                     What is it?

• Section 10(c) of the Act requires the FCC to act on a
  petition for forbearance within one year after the filing
  date

• Petition is deemed granted if no action is taken

• FCC can extend the one year deadline (one time)
  by 90 days
The ticking clock rushes decisions of significance

 November 12, 2007       Susan M. Baldwin      NASUCA Annual Meeting
                  Forbearance from what?

• Cost Assignment Rules
• Reporting Requirements (e.g., ARMIS)
• Loop and Transport Unbundling Requirements
• Dominant carrier regulations (federal tariff filings; price
  cap regs; discontinuance)
• Computer III and ONA requirements
• Title II and Computer Inquiry Rules (Broadband)



    November 12, 2007      Susan M. Baldwin     NASUCA Annual Meeting
              Forbearance from what?

• Dominant Carrier Regulations
    – Part 61 – tariffing
    – Part 61 – price caps
    – Part 63 – discontinuance and transfer of control
• Computer III and ONA
    – Nonstructural safeguards for provision of enhanced
      services
    – Open Network Architecture
    – Unbundling of building blocks of enhanced services


November 12, 2007          Susan M. Baldwin       NASUCA Annual Meeting
                    RBOC Petitions

  Unending parade of petitions:
  RBOCs assert that FCC rules no longer serve their
  intended purpose; the cost associated with regulation is
  burdensome and harms competition; and that
  consumers are protected by:
   • Competition (They are not)
   • FCC Price Cap System (Not sufficient)
   • Other regulations still in place (Wrong)


November 12, 2007        Susan M. Baldwin    NASUCA Annual Meeting
        RBOC Petitions Are Flawed

  Many of the analytic/economic issues parallel
  debates occurring before state PUCs:
  Geographic market is too broad:
   – State > MSA > Wire Center

  Proposed product market is flawed
   – Intermodal competition ≠ basic local



November 12, 2007       Susan M. Baldwin    NASUCA Annual Meeting
        RBOC Petitions Are Flawed


The burden is on the petitioner, yet RBOC
petitions:
    – Lack specific details about the specific regulations
      from which they seek forbearance
    – Lack discussion of the three-prong test re each
      regulation separately
    – Fail to demonstrate the cost of the regulations
      outweigh benefits

November 12, 2007          Susan M. Baldwin     NASUCA Annual Meeting
        RBOC Petitions Are Flawed


Forbearance from discontinuance
Public review of mergers, sales is critical
    – Verizon proposed sale to FairPoint in ME, NH, VT:
      critical to assess consumer impact
    – Many mergers (SBC/AT&T; AT&T/BellSouth;
      Verizon/MCI): at least some conditions are better
      than none

November 12, 2007         Susan M. Baldwin    NASUCA Annual Meeting
         RBOC Petitions Are Flawed

Petitions for forbearance from ARMIS and other reporting
   – AT&T (Docket WC 07-139), Qwest (Docket WC 07-
      204); Verizon (as part of six-MSA petition - WC
      Docket 06-172)
   – Would further tip balance of information asymmetry
      between regulators and telcos
   – Service quality is declining – reports allow detection
   – Separations needs fixing – reports are relevant tools



 November 12, 2007       Susan M. Baldwin      NASUCA Annual Meeting
                     Consumer Harms
• Rate increases, service quality decline, door further closed
  on competition
• Loss of valuable data
     – Cost information
     – Service Quality
• Regulators and consumer advocates are unable to detect
  problems and take enforcement actions re anticompetitive
  conduct
• Although rates may not be based on rate-of-return
  regulation, an analysis of “just and reasonable” must be
  based, in part, on cost


 November 12, 2007         Susan M. Baldwin       NASUCA Annual Meeting
                             Consumer Harms

“Verizon seeks forbearance from Commission regulations that
provide many consumer benefits and protections. Those benefits
and protections include, inter alia, limitations on increases in
certain rates, opportunities to provide comment in certain
proceedings, non-discriminatory access to the public network, and a
variety of service quality protections. Each of the regulations from
which Verizon seeks forbearance is instrumental in achieving the
goals Congress established when it passed TA-96 to ensure that ‘all
charges, practices, classifications and regulations for and in
connection with [] communication service, [are] just and
reasonable.’”
(NASUCA Comments in 06-172, at 4.)


  November 12, 2007                  Susan M. Baldwin   NASUCA Annual Meeting
                     Consumer Harms

Premature grant of forbearance leads to:
•Loss of competition
•Potential for anticompetitive behavior by ILEC
•ILEC abuse of market power
Consumer impact:
•Higher prices
•Lower service quality
•Lack of consumer choice

 November 12, 2007        Susan M. Baldwin    NASUCA Annual Meeting
What constitutes effective competition?

 FORBEARANCE DEBATES ECHO DEBATES IN STATE PROCEEDINGS
 • Intermodal is not an economic substitute for basic local

 • Access line loss does not alter continuing ILEC dominance

 • Weight afforded facilities-based vs. wholesale

 • Duopoly – One facilities-based cable competitor is not enough: cable and
   ILECs control 95% of residential broadband access (58% by cable; 37% by
   ILECs)

 • Residential vs. business: even if CLECs serve business customers, this doesn’t
   mean they will serve residential market, especially “no frills” standalone basic
   local


  November 12, 2007                 Susan M. Baldwin              NASUCA Annual Meeting
Seemingly Endless Parade of Petitions

• Quantity/frequency of petitions fragments
  policy making
• Burden shifts inappropriately to consumers
  to identify and to oppose petitions
  (otherwise deem granted)



 November 12, 2007   Susan M. Baldwin   NASUCA Annual Meeting
      Pending Forbearance Petitions
   Pending ForbearancePetitions
  FCC Deadline            Carrier/Docket                               Issue                               Last FCC Action
     12.05.07     Verizon                         Forbearance Pursuant to 47 USC 160 in the        Order extending by 90 days time
                  WC Docket 06-172                Boston, New York, Philadelphia, Pittsburgh,      in which petition will be granted
                                                  Providence and Virginia Beach MSAs
     01.22.08     Qwest                           Forbearance from Resale, Unbundling, and         Public Notice seeking comment
                  WC Docket No. 02-78             Other Incumbent Local Exchange Requirements      (pleading cycle ended 03.20.07)
                                                  Contained in Sections 251 and 271 of the
                                                  Telecommunications Act in the Terry, MT
                                                  Exchange
     01.16.08     Cablevision Lightpath           Forbearance from Title II and Computer Inquiry   Public Notice seeking comment
                  WC Docket No. 07-12             Rules with Respect to Broadband Services         (pleading cycle ended 03.23.07)
     01.25.08     AT&T                            Forbearance from Enforcement of Certain of       Public Notice seeking comment
                  WC Docket No. 07-21             the Commission's Cost Assignment Rules           (pleading cycle ended 04.09.07)
     02.09.08     BellSouth                       Forbearance from Enforcement of Certain of       Public Notice seeking comment
                  WC Docket No. 07-21             the Commission's Cost Assignment Rules -         (pleading cycle ended 04.09.07)
                  (originally WC Docket No. 05-   (original filed on 12.06.05; withdrawn and re-
                  342)                            filed on 02.09.07)
     04.27.08     Qwest                           Forbearance from Loop and Transport              Public Notice extending
                  WC Docket No. 07-97             Unbundling Requirements in the Seattle MSA ;     comment period through
                                                  Phoenix MSA; Denver MSA; and Minneapolis -       10.01.07
                                                  St.Paul MSA
     07.08.08     AT&T                            Forbearance from Enforcement of Certain          Public Notice seeking comment
                  WC Docket No. 07-139            ARMIS Reporting Requirements                     (pleading cycle ended 09.19.07)
     09.12.08     Qwest                           Forbearance from Title II and Computer Inquiry   Public Notice seeking comment
                  WC Docket No. 06-125            Rules with Respect to Broadband Services         (pleading cycle ended 09.20.07)
                                                  (Qwest withdrew original petition and refiled)
                                                                                                   Order extending pleading cycle
                  Qwest                           Forbearance from Certain ARMIS and 492A
     09.13.08                                                                                      (Initial due 12.06.07; Reply due
                  WC Docket No. 07-204            Reporting Requirements
                                                                                                   12.21.07)
Source: NECA and FCC
                    AT&T     (WC Dkt. 07-21)


• AT&T and BellSouth affiliates
• Forbearance from the following rules sought:
    –   Section 32.23 (nonregulated activities)
    –   Section 32.27 (transactions with affiliates)
    –   Part 64 Subpart I (cost allocation rules)
    –   Part 36 (jurisdictional separations rules)
    –   Part 69 Subparts D, E (cost apportionment rules)
• Limited forbearance from section 220(a)(2) to the
  extent the provision contemplates separate
  accounting of nonregulated costs

November 12, 2007            Susan M. Baldwin      NASUCA Annual Meeting
                    AT&T   (WC Dkt. 07-21)


  Key points raised by opposing and questioning
  comments:
    – The continued reliance on allocated costs for state rate
      regulation
    – The continued importance of allocated costs under
      federal price cap regulation
    – The continued importance of allocation in the FCC’s
      special access and other proceedings
    – AT&T’s (and other BOCs’) reliance on the use of allocated
      costs when it suits their purposes

November 12, 2007          Susan M. Baldwin       NASUCA Annual Meeting
                     Verizon       (WC Dkt. 06-172)

• Petitions for Philadelphia, Pittsburgh, Boston, Providence, New York
  City and Virginia Beach MSAs

• Forbearance relief request more comprehensive than that granted in
  Omaha Order:
     – Loop and transport unbundling regulations pursuant to Section 251 of the
       Act (47 CFR §51.319 (a), (b) and (e))
     – Dominant carrier tariffing requirements (Part 61 of FCC Rules: 47 CFR §§
       61.32, 61.33, 61.38, 61.58, and 61.59.) Relate to notice and filing
       requirements for tariff changes
     – Price cap regulation (Part 61 of FCC Rules)
     – Computer III requirements (including comparably efficient interconnection
       and open network architecture requirements)
     – Dominant carrier requirements pursuant to Section 214 of the Act


 November 12, 2007                Susan M. Baldwin             NASUCA Annual Meeting
                    Verizon            (WC Dkt. 06-172)

  “Verizon’s Petitions also seek forbearance from Commission
  regulations that provide substantial consumer benefits and
  protections affecting retail customers. In addition to rate
  protections, these regulations also provide quality of service and
  other protections that ensure that basic local exchange
  telecommunications services are just and reasonable. The
  regulations from which Verizon seeks forbearance are identified
  only in a footnote in Verizon’s Petitions, and are not mentioned
  again anywhere in the Petitions or the accompanying
  Declarations, which focus on issues relating to competition.
  However, these regulations have a substantial impact on
  consumers’ daily use of their telecommunications services.”
  (NASUCA 06-172 Comments, at 16-17)




November 12, 2007                      Susan M. Baldwin   NASUCA Annual Meeting
                    Qwest    (WC Dkt. 07-97)


    • Seattle, Phoenix, Denver, and
      Minneapolis – St. Paul MSAs

    • Relief requested more comprehensive than
      that granted in Omaha Order:
         – Dominant carrier requirements (part 61.41 -61.49)
         – Computer III and Open Network Architecture
         – Section 251 and Section 271 requirements


November 12, 2007             Susan M. Baldwin       NASUCA Annual Meeting
                               Qwest                         (WC Dkt. 07-97)



“Taken together, these petitions threaten the competitive
landscape for nearly 13 million Americans, in over four and a half
million households. And unlike the relatively small territories at
issue in the Omaha and Anchorage forbearance proceedings,
Qwest’s Petitions cover a massive geographic area -- covering large
parts of four western states. The smallest of the MSAs at issue here,
the Denver, Colorado MSA, is nearly three times larger [in
population] than the Omaha MSA.”
(NASUCA Reply Comments in 07-97, quoting EarthLink et al, at 2)




  November 12, 2007                                           Susan M. Baldwin   NASUCA Annual Meeting
                     Qwest   (WC Dkt. 07-97)


Opposition based upon:
• Actual level of competition in MSAs – Qwest ignores
  Omaha Order granular wire center analysis and asks for
  forbearance throughout four MSAs
• Overreaching nature of petitions

   NASUCA Reply comments October 1st suggest that the
   FCC should go back and review what effect Omaha Order
   and forbearance has had on markets and notes that
   Qwest must do more than cite Omaha Order to make a
   showing in this proceeding.

 November 12, 2007           Susan M. Baldwin   NASUCA Annual Meeting
             Piecemeal Policy Making
  “Dealing with the multitude of forbearance petitions … is a risky
  and messy business”

  “Let us start by noting what may already be obvious to many –
  dealing with the multitude of forbearance petitions before us is a
  risky and messy business. There are no requirements on the
  parties to be explicit in their requests or detailed in the data they
  provide. It is left to the Commission to sort through and if we
  don’t, we hand over the writing of these rules to industry.”

  Petition of AT&T Inc. for Forbearance Under 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to Its
  Broadband Services; Petition of BellSouth Corporation for Forbearance Under Section 47 U.S.C. § 160(c) from Title II and Computer
  Inquiry Rules with Respect to Its Broadband Services; WC Docket No. 06-125, Memorandum Opinion and Order (October 11, 2007),
  Joint Statement of Commissioner Michael J. Copps and Commissioner Jonathan S. Adelstein, Dissenting, at 42.




November 12, 2007                                     Susan M. Baldwin                                NASUCA Annual Meeting
                     How to Fix

 Oppose them!
    – Demonstrate how petitions hamper state goals, state
      regulation
    – Demonstrate consumer harm

 Deny petitions that lack empirical support

 FCC should signal clearly that it won’t tolerate policy
 making in a fragmented, piecemeal fashion



November 12, 2007           Susan M. Baldwin       NASUCA Annual Meeting
         More Detailed Information

 Multitude of details and issues raised
 by forbearance petitions




November 12, 2007   Susan M. Baldwin   NASUCA Annual Meeting
                      Omaha Order
• Approved, in part, for mass market and broadband services (but not
  enterprise services)

• Forbearance from Part 63 non-dominant carrier discontinuance rules on
  the condition that Qwest subject to same treatment as non-dominant
  carriers under those rules (para.43)

• Forbearance from network unbundling obligations under Section 251(c)(3)
  (loops and transport) in 9 of 24 wire centers

• Despite forbearing, in part, from loop and transport unbundling in some
  wire centers, the FCC found that certain key obligations that Qwest is
  subject to under Section 251(c) and 271(c)(2)(B)(ii) (“competitive checklist
  requirements”) should remain in place


 November 12, 2007               Susan M. Baldwin             NASUCA Annual Meeting
                    Omaha Order


• December 2, 2005
• Qwest petition for Omaha MSA
• FCC grant:
    – Forbearance for mass market but not enterprise with
      respect to dominant carrier regulations
    – MSA-based analysis for dominant carrier regulations
      but wire center for unbundling requirements for 271

November 12, 2007        Susan M. Baldwin    NASUCA Annual Meeting
                                 Omaha Order


  “This Order is significant because it
  demonstrates the Commission’s willingness
  to grant substantial deregulation to an ILEC
  even with only one significant facilities-
  based competitor in the market”

  Latham & Watkins Corporate Department, Client Alert, December 19, 2005




November 12, 2007                                  Susan M. Baldwin        NASUCA Annual Meeting
                             Omaha Order
  Predictive assumptions of FCC may have been optimistic or just plain erroneous

  The Arizona Corporation Commission states that McLeodUSA’s Petition shows:

  “CLECs trying to compete in the nine wire centers in the Omaha MSA have experienced wholesale
  monthly price increases from Qwest in the range of 30% or more for DS0 stand alone loops. A minimum
  increase of 86% for DS1 access loops and a 360% increase in associated non-recurring charges for
  installing DS1 access loops have also been realized by the CLECs. While the cost to install a UNE DS1 loop
  and cross connect in Nebraska is $136.15; that same loop costs $626.50 to install in one of the nine
  Omaha wire centers. The monthly recurring charge (“MRC”) for a UNE DS1 in Zone 1 increased from
  $76.42 to a special access rate of $182.22 in that same Omaha wire center. Even at the discounted
  special access rates, if term and volume commitments are met, the lowest discounted MRC in the
  affected Omaha wire centers is $145.95. This is a 91% increase over the monthly UNE DS1 Rate. Based
  on the current state of competition in the nine Omaha MSA wire centers, the ability of CLECs to continue
  to effectively compete in the Omaha market is questionable.”




November 12, 2007                            Susan M. Baldwin                       NASUCA Annual Meeting
                     Anchorage Order

• Petition of ACS of Anchorage, Inc. Pursuant to Section 10 of the
  Communications Act of 1934, as Amended, for Forbearance from
  Sections 251(c)(3) and 252(d)(1) in the Anchorage Study Area, WC
  Docket No. 05-281, Memorandum Opinion and Order (rel. January 30,
  2007)(“Anchorage Order”)

• Sought forbearance from unbundling obligations pursuant to 251(c)(3)

• FCC granted forbearance in 5 of 11 wire centers. However, the grant
  was conditioned upon ACS providing local “legacy” loop access,
  including access to the same subloops from which the Commission
  forbears unbundled local switching or other services, pursuant to
  commercially negotiated rates specific to the Anchorage study area.
  (Anchorage Order, at para. 39)


 November 12, 2007             Susan M. Baldwin         NASUCA Annual Meeting
AT&T Title II & Computer Inquiry

• FCC granted forbearance in WC Docket No. 06-125 on
  October 11, 2007
• AT&T sought relief comparable to that deemed granted to
  Verizon in March 2006
• Granted substantial relief with respect to existing packet-
  switched broadband service and existing optical
  transmission services
• Relief from Computer Inquiry rules related to those
  services conditioned upon compliance with Computer
  Inquiry rules that apply to all non-incumbent LEC,
  facilities-based wireline carriers

 November 12, 2007        Susan M. Baldwin      NASUCA Annual Meeting
                    Verizon                        (WC Dkt. 06-172)

  “Two of the six Petitions filed by Verizon, i.e., those that cover the New York and
  Philadelphia MSAs, will impact 2.7 million households, or 89% of all households, in the
  State of New Jersey in 16 of the state’s 21 counties. In fact, if approved, Verizon’s
  Petitions would impact over 80% of the wire centers and an even higher percentage of
  lines serving customers in Verizon’s service territory. Moreover, approval would
  severely limit competitive alternatives in regions of the state where consumers can
  least afford it, including the city of Camden where almost 41.0% of the families living in
  the city have incomes below the poverty line.”

  “The Board is extremely concerned with the deleterious, profound and lasting
  consequence that approval of Verizon’s Petitions would have on the state’s competitive
  providers and ultimately consumers of telecommunications services. Over the past
  decade, the Board has painstakingly endeavored to establish balanced policies to
  promote local competition in the state. However, Verizon’s Petitions threaten the very
  foundation and balance the Board has worked so hard to achieve.”

  New Jersey Board of Public Utilities Reply Comments, April 18, 2007, at 3-4.




November 12, 2007                                  Susan M. Baldwin              NASUCA Annual Meeting
                    FCC Analysis

 Defining the product market

       FCC differentiates between Mass Market and
       Enterprise market interstate services

       Mass market includes residential and small business




November 12, 2007          Susan M. Baldwin    NASUCA Annual Meeting
                    FCC Analysis

 Geographic market
   • MSA
   • Zip Code
   • Wire Center

 In Omaha Order, granted Qwest petition for relief from
 Section 251(c)(3) loop and transport unbundling obligations
 in 9 wire centers in Omaha MSA based upon actual and
 potential competition (para. 57)


November 12, 2007        Susan M. Baldwin       NASUCA Annual Meeting

								
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